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The embattled Finance Minister Arun Jaitley – clearly aware that the knives are out for him

Finance minister Arun Jaitley will be fighting from a tight corner on February 1, 2017, boxed in by low domestic demand and the approaching international headwinds of a protectionist United States.

Fighting on the backfoot is new to this government, which had it easy over the first two years. The windfall from falling oil and commodity prices created fiscal space over the last two years to check the right boxes on fiscal deficit and inflation. High interest rates kept the rupee strong. Deft footwork also boosted GDP numbers since 2014 to signal a new age of high economic performance.

Here are six red flags, which track if the finance minister’s courtroom fighting abilities are still intact as he presents Budget 2017-18.

Does the growth estimate triangulate?

The estimate for growth during the current year 2016-17 and 2017-18 will show whether the government recognises that it has a problem. Assumptions of unrealistically high growth have a domino effect. They reduce the credibility of the tax revenue projections and the size of the fiscal deficit both of which track GDP growth. GDP growth estimates above 10 per cent in current prices (corresponding to six per cent in constant prices) or a number higher than Rs 149.5 trillion for 2016-17 and above 10.5 per cent in current prices (corresponding to 6.5 per cent constant prices), for 2017-18 is a red flag showing the government is burying its head in the sand.

Do the tax revenue estimates sound real?

An estimate for gross tax receipts, including the share of the states in Centrally-levied taxes, higher than the 10.8 per cent of GDP budgeted for in 2016-17 is unrealistic. Sticking to this level may be termed not aggressive enough in the context of the hyped-up expectations from the attack on black money. But note that this level was previously last achieved seven years ago, in 2007-08 before the financial crisis. Now, with fresh uncertainties in demand and corporate profitability, it remains an aggressive target. Anything higher is dodgy.

Any incentives for tax compliance?

Assuming higher average revenue from increased indirect tax rates, when the Goods and Services Tax rates have still to be negotiated with the states, give the wrong signals for growth, business and private consumption. On direct tax, some fiscal courage is required. Dilute the disincentive to evade tax, inherent in high tax rates — currently between 10 to 30 per cent — for middle-income earners up to an annual income of Rs 24 lakhs. It is reasonable to expect that better compliance will compensate for the hit taken on lower tax rates. Not doing so flags low confidence in the responsiveness of the tax machine to broaden the tax base. Challenging the machine to do better can work. Try it.

Are there band aids for the victims of demonitisation?

Economic shocks affect the poor the most. Eighty per cent of the poor live in rural areas. The bottom 40 per cent of the population are either poor — a constantly changing group averaging around 22 per cent of the population — or are non-poor but vulnerable to fall into poverty due to personal or systemic shocks.

The allocation for rural poverty alleviation in 2016-17 is Rs 0.6 trillion across four schemes. The ongoing National Rural Employment Guarantee Act (NREGA) is a second best but a practical, quick-start option to scale up income transfer to the poor to insulate them for the twin economic shocks.

NREGA operates in all the 707 districts of India. This is politically sensible but wasteful. Out of the 29 states there are nine states in which the proportion of the poor exceeds the national average of 22 per cent. These “stressed states” should be specifically targeted. Separately, the government should target 40 per cent of the poorest districts, using the “poverty gap/person equivalent” metric to ensure that there is an incentive to first transfer income to the poorest of the poor. Anything less than an enhanced outlay of Rs 1 trillion for poverty alleviation red flags an irresponsible development strategy.

Has the fiscal deficit become an unreal holy grail?

Mr Jaitley has been steadfast in lowering the fiscal deficit from the level of 4.3 per cent in 2013-14 — the terminal year of the previous government. He courageously embraced the daunting target of 4.1 per cent, naughtily left for him to deal with by P. Chidambaram in the interim Budget for 2014-15.

He succeeded in meeting the target against all expectations. But he was subsequently, practical enough, to retain a target of 3.5 per cent of GDP for 2016-17 instead of the planned three per cent. Inflation is currently low, at well under five per cent per year — the target level determined in the monetary policy framework. The US generated economic shocks to world trade; to growth and to world demand will keep commodity prices low.

It is good to recollect that the fiscal deficit peaked at 6.5 per cent in 2009-10 soon after the financial crisis of 2008. We are yet again in a perfect storm of domestic and external shocks. The need of the hour is to be practical not foolhardy. If the finance minister chooses valour over vision and sticks to a fiscal deficit target of three per cent for 2017-18, the red flag of fiscal cowardice should go up. The brave accept challenges and fight them openly.

Has public investment been provided for?

Sluggish private investment requires that the slack be met by public investment. Banks are to be recapitalised, infrastructure developed and armaments upgraded. 2016-17 targeted 1.6 per cent of GDP for Central government investment expenditure. Budget allocations have always trailed actual investment expenditure so there is room for some bravado here. The investment red flag must be raised if targeted investment in 2017-18 is below two per cent of GDP.

To navigate the dragnet of stagnant tax income, lower growth and low demand, the finance minister must avoid raising any of the six red flags. To do so, he must systematically cut waste and pork to balance the Budget transparently.

Pushing for doubling revenues from privatisation to a never-achieved estimate of Rs 1 trillion is one button he should press for increasing the fiscal leeway available to him. This will also signal that the reform process is alive and well. There is nothing like a resource constraint to separate the winners from the also ran.

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Finance minister Arun Jaitley’s third Budget signals the mid-point of this government’s tenure till 2019. At the best of times, the honeymoon period would have ended by now.

Photo credit: in.news.yahoo.com

But it is unfortunate that the FM has to face a perfect storm of snowballing, fiscal liabilities in public sector banks; drought induced low agricultural productivity; international economic head winds; the additional cost of securing India in an increasingly insecure world and the consequences of populism- primarily the wholly unnecessary increase of 23 percent in government pay and pensions and the outcome of delayed reforms in subsidy.

Running out of fiscal resources

In comparison, the government’s budget kitty is woefully inadequate even without meeting the long standing demand for spending more on health and education; developing infrastructure; boosting rural incomes; extending the patchy system of social protection and enhancing long neglected defence preparedness.

Photo credit: Dreamstime.com

Consider that the total annual capital budget of the Union government last year was just Rs 2.4 lakh crore (just 1.7 percent of GDP). State Governments spend a similar amount. But public investment at just 3.4 percent of GDP does not compare well with the thumb rule for developing countries of at least 8 percent of GDP especially when you are also running a fiscal deficit of 4 percent also in the Union budget alone.

The mess in government banks

More worryingly, even this meagre public investment may not actually be possible if the fiscal mess emanating from public sector banks is to managed. Loans worth Rs 3.5 lakh crore in government owned banks are acknowledged as non performing (the borrowers have defaulted on repayments). Some provisioning for writing off these loans has been done but not enough.

The real risk is that a whopping Rs 2.7 lakh crore of loans have been dressed up by “restructuring” them. In essence rolling over non-performing loans (NPA) so that they exit the NPA classification. But whether the favoured borrowers can support future repayments is unclear. The RBI has come down heavily on such practices and directed banks to start provisioning against all stressed assets. Hence the spate of losses recorded in the quarter ending December 2015 by government owned banks.

Another worry is that government banks will need an additional Rs 1.8 lakh crore of equity infusion to comply with the Basel III capital adequacy norms. This takes the total capital requirement of government banks to Rs 6 lakh crores- just under 4.5 percent of GDP.

Even if the entire capital budget of the government is diverted for re-capitalizing government banks — it will still take two to three years before they get a healthy balance sheet. And what is there to stop the cycle of irresponsible lending from being repeated? After all, these non-performing assets were built up over the past several years. But none of the top honchos of these banks — present or past — have been called to account for this colossal deception.

Poor credibility of corporate governance in government banks

Jugaad trumps systems; Photo credit: Alamy.com

Today, government bank equity is deeply discounted. The credibility of corporate governance in government banks has been dented. Worse still, there is no clear path for restoring stability. The direction preferred by the government is to retain the governance architecture of government owned banks with notional changes to enhance bank autonomy. Privatization of select government banks – a sure mood lifter for domestic and international investor community- has never been a preferred policy option.

Government ownership has benefits. For one, it notionally reassures depositors that their money is safe. Possibly this is why there is no run on deposits in government banks, unlike what was seen in Greece recently. Depositors and bond holders view government banks through the filter of sovereign credit. It helps that India has an impeccable record on meeting all its financial commitments.

But one trigger, which could escalate the financial risk sharply could be if oil prices start firming up subsequent to the production freezing agreements between Saudi Arabia, Russia and other top oil producers. This will stoke inflation in India; keep domestic interest rates high, thereby impacting investment and worsen the current account deficit. Add to this that sharply reduced public investment- a consequence of possible diversion of capital to clean the balance sheets of government banks, will also impact growth, jobs and incomes.

The poisoned chalice of trade offs

Government has a poisoned chalice it needs to sip from. If it brushes deep, bank restructuring under the carpet, it can postpone the day of reckoning- but only at significant medium term economic cost. A broken government banking system, which caters to 70 percent of banking needs, cannot sustain rapid private sector growth.

One option for maintaining fiscal stability, is for the government to access multilateral support from the International Monetary Fund (IMF) for restructuring government banks. IMF support reassures investors because it comes with a programme of structural and governance reform, including broad basing the share-holding of banks to non-government investors; professionalizing their boards and embedding oversight mechanisms to insulate them from succumbing to politically motivated loan melas or dodgy, private projects.

Government should shed the muscular stance

The down side is that going cap-in-hand to the IMF does not fit the muscular India story, which is the leitmotif of the BJP government. The BJP will worry that it will have negative political consequences in the forthcoming state elections in West Bengal, Assam, Tamil Nadu and next year in Uttar Pradesh (UP). This is true. But none of these states offer credible political gains for the BJP in any case, except UP. The muscular approach can be abandoned without much grief. Its marginal utility is diminishing and reduced dividends are already visible.

One hopes that the government’s brand managers are reading the tea leaves correctly. This is not the time for soaring rhetoric or proclaiming achievements loudly. Far better to adopt a humble posture, point to the depressing state of the world and outline an agenda for dealing with adverse circumstances.

The FM can be charming if he tries. Photo credit: freepressjournal.in

Three big steps out of the fiscal mess

First Mr. Jaitley must guard against 2016 becoming India’s 2008 “Lehman Brothers” moment. Lehman Brothers was a global financial services firm that filed for bankruptcy protection. This sparked off a domino effect which exposed deep financial irregularities across the banking sector. It also triggered the Occupy Wall Street movement. Ordinary citizens, disgusted by the extent of malfeasance in the financial world, took New York by storm and shut down the financial district. At the best of times, Indians are suspicious of big business and are quick to come out on the streets in protest. This is not the time to risk an “Occupy Dalal Street movement”.

Government must regain credibility by coming out strongly against all those who have connived to build up this huge quantum of non- performing loans — bank managers who were in decision-making roles, large corporate borrowers and those within the political establishment who may have turned a blind eye to such maladministration. Mr. Jaitley must also share publicly how deep is the rot and what steps the government proposes to manage the fall out.

Second, government should take this opportunity and opt for only a “holding budget” for 2016-17 — an accounting exercise to rationalize and consolidate past initiatives. The bottom line is to insulate income support for the poor and allocations for agricultural production from the fiscal mayhem. Health, drinking water and sanitation and education allocations should be held at 2014-15 levels relative to projected GDP.

Finally, the government must increase gross tax collection over the next two years from the low of 10 percent in 2014-15 to 12 percent of GDP- last achieved in 2007-08. The GDP growth projections of 7.5 percent lack credibility when triangulated with the ground realities. Lower growth will impact tax revenues negatively. Services tax is a progressive tax, which primarily affects the well off. Raising the rate by 2 percentage points could generate an additional Rs 30,000 crore. Taxing capital gains from the sale of equity and the receipt of dividend beyond a threshold level, is another option for reducing income inequality and plugging a big hole in the tax net.

Government already spends more than it earns on revenue expenditure. We still run a revenue deficit of nearly 3 percent of GDP, which we fund by taking loans. Hence, the increasing burden of interest payment. Trade-offs will have to be made if the unwise commitment – amounting to Rs 100,000 crore – on the 7th Pay Commission recommendation is implemented.

So are we in the eye of the storm? And could we be on the cusp of a potential financial emergency? We should act before a flash point triggers this eventuality. A modest budget for 2016-17, enhancing tax collection by selectively increasing the effective tax rates and sharply focused allocations for value enhancing public expenditure, is the only way out of this mess.

Bad ideas are as resilient as cockroaches — the only living being guaranteed to survive even a nuclear holocaust. Both have a tendency to resurface even after being squashed.

One such bad idea, originating from the Niti Aayog, is to revive the plan of special economic zones (SEZ) on a much larger scale as a carbon copy of SEZs in China. It’s called coastal economic zone (CEZ).

Shikao area, Shenzen at dusk. Photo credit: Xinhua

The ostensible drivers are the need to create more decent jobs- NitiAyog says these are generated only by large industries- and the desperation to revive exports. Both objectives are above reproach. It is the strategy to get there which is perverse.

India is not new to the concept of enclave development for export manufacture. Export processing zones (EPZ) have existed since 1965 when the first one was established in Kandla-Gujarat, followed by Santacruz electronics export processing zone in Maharashtra. These gave way in the 1980s to the stand-alone 100 per cent export oriented units. Next were SEZs with a legislation to support them in 2005.

Niti Aayog’s CEZ proposal focuses on coastal development. Nothing new here — 68 per cent of the 329 notified SEZs existing in 2015 were in eight coastal states. The only problem is that coastal states are far richer than the hinterland so CEZs will make them even richer enhancing spatial inequality.

The big change is that only two CEZs are envisaged, each of 2,000 to 3,000 sq km, to simulate the network benefits of regional development. Compare this with the 626 sq km notified for 390 SEZs, of which just 6 per cent or 25 SEZs exceed two sq km in size. But do we have excess land of this magnitude?

Consider, if Goa wants a CEZ. It must cede 50 per cent of its area of 4,000 square kilometers. With regulatory powers in the CEZ transferred from the chief minister to Union government appointed development commissioner, Goa would effectively revert to the status of a Union Territory.

Goa. Photo: Wikipedia.

Should Kerala want a CEZ, it needs to convert 10 per cent of its land area into a “deemed foreign territory” managed from Delhi. How well this will go down with the fiercely combative citizens of Kerala is anybody’s guess. Contiguous states can join hands to reduce the area surrendered by each. But this could invite administrative complexity and delays in harmonising norms and work practices across states.

The NitiAyog paper says Shenzen in China before it became the first SEZ had just 300,000 people. Today 11 million people live there. Only problem, in coastal India the average density of population is around 940. In a 3000 square kilometer area there would already be 3 million living there.

So is the CEZ proposal just old wine in a new bottle? And is it pragmatic?

Tax havens are yesterdays means of boosting exports

The United Nations Conference on Trade and Development (UNCTAD) surveyed 100 developing country export zones in 2015. They concluded that islands of excellence, with special set of laws, rules and practices — as proposed in a CEZ — can create enormous political risk by excluding others from development. Political risk is not an issue in single-party, authoritarian China. But India cannot afford to segment development and exclude large swathes of the “cow belt” where a large number of the poor exist. Unlike China, we have an open domestic migration policy. This makes segmented development politically impractical, especially on the scale envisaged in the CEZs. In any case, in the emerging plurilateral international trade environment, it is questionable if tax breaks and investment incentives are the route to trade competitiveness or whether strategic membership of free trade agreements will be key.

Enclave development for exports are “walled gardens” of the real world

Indian SEZs were primarily tax arbitrage havens with the added sweetener of access to land. The relative export competitiveness of SEZ units versus exports from the domestic trade area, declined significantly in 2013, as soon as the exemption from Minimum Alternative Tax was withdrawn in 2012. This shows that state-driven market distortions do not boost exports in a sustained manner. Another reason why the SEZ scheme floundered was that import taxes and licenses got rationalized across the board and it became easier to import for export across the country. Coupled with the advatngaes of free access to the Indian market locating outside the SEZs became more attractive. SEZs remain a favourite for IT industries, which are mainly export driven and have a culture of enclaved bubbles.

Freedom – Bangalore style Photo; wikipedia

There is no alternative to maintaining a competitive exchange rate; managing inflation and broad based, deep administrative reform to enhance exports.

Between 2006 and 2014, 1.4 million jobs were created in SEZs — an impressive 50 per cent of the total increase of 3 million in private employment. But it is unclear if these were all new jobs or the result of existing domestic area export units simply shifting into a SEZ to avail tax advantages.

Land scams accompany if Union government usurps what should be done locally

Consider the 2014 report of the Comptroller and Auditor General (CAG): “Land appeared to be the most crucial and attractive component of the scheme (SEZ)”. In a replay of the coal mining scam, the regulatory gaps emanating from the constitutionally mandated division of oversight between the Union and the state government were exploited. The Union government notifies and de-notifies SEZ land. But it turns a blind eye to the responsibility of the state governments to ensure against scams in the acquisition and subsequent use of such land. Instances of inclusion of ineligible land for notification; allotment of land far in excess of need and protracted non-use of notified land by SEZs, all resulted in the diversion of SEZ land for more lucrative commercial exploitation.

The suspicion of mala-fide intentions is strengthened because state governments sold land, acquired for public purpose prior to 2007, to developers rather than giving it on lease, which would have retained their oversight over its use. Estimating the resultant undue benefits is tough without a forensic audit. It is telling that documents relating to 47 SEZs, including most of the biggest ones, were not provided to the CAG for audit by the Ministry of Commerce.But even with what was handed over to CAG the results are shocking.

73 per cent of the land notified for nine SEZs in three states was for “restricted” use only – forest, defence and irrigated land, which was not eligible to be notified. Operations started only on 62 per cent of the 456 square kilometers of land notified till March 31, 2013. In eighteen SEZs, operating across eight states, only 17 percent of the 42 square miles notified was actually used for “processing” against the norm of using at least 50 per cent. With large amounts of unused land available, private developers successfully approached the government to de-notify SEZ land which could be used for more lucrative commercial purposes. Assuming that just 25 per cent of the 456 sq km, notified till 2013, was misused, the potential extra-legal earnings would have been to the tune of Rs 4,500 crore — minor pickings by the standards of contemporary scams.

Good policy is never backward looking and can benefit from past errors. If CEZs are to be headline-grabbers in the 2016 Budget, they must have caveats: No new land should be acquired for them. If land is needed the private developer should follow the negotiation route popularized in Punjab and now by Chief Minister Chandrababu Naidu in Andhra Pradesh; No fresh public finance should be available for CEZs; All additional infrastructure needs must be funded by the private developer; Instead of the Union government, the state governments should be in the driver’s seat; and, states should enact their own CEZ legislations (as was done by Rajasthan in labour laws) which could be approved by the President, if constitutionally required.

Adherence to the fiscal deficit targets requires conserving public finance. Developing the richer coastal areas runs contrary to the Prime Ministers vision of development for all. Most importantly, getting directly involved in land and urban development — both of which have been fertile ground for scams — is unwise for a reformist Union government. This high risk strategy is not the best option for sustainable gains in private investment, employment and exports.

The monsoon is likely to be deficient by 12%. This would be the second year in a row. True, agriculture only accounts for around 15% of the economy and didn’t grow much last year either. But when you target 7.8% growth every basis point, added or lost, counts.

Manufacturing and services growth is already slow. Companies are at best cautiously optimistic but the caution makes new investment sticky. The money and jobs spinning realty sector, driven earlier by negative interest rates, is in a slump.

To complete the “perfect storm” scenario there are two important state level elections around the corner-Bihar later this year and UP in 2017. Neither state has BJP governments currently, so doing well in these will inevitably be a metric of how strong the Modi magic remains.

The good news of course is that every threat is also an opportunity. This is PM Modi’s opportunity to show that he is the Lion we think him to be.

Fiscal stability disaster prone

First, more will need to be spent on drought relief; restructuring of bank loans for farmers and income support schemes for farm workers. Delhi, admittedly with a miniscule rural area, has already distributed Rs 50,000 per hectare as relief for the farmers hit by the April 2015 unseasonal rain. FM Jaitley is possibly right that the drought will be localized in North and Central India. But these regions account for around 45% of the farmers. Retaining the targeted revenue deficit at 2.8 % and public investment at 14% of the budget will consequently be tough.

Postponed subsidy reform

Second, it is unlikely that subsidy corrections will now be possible this fiscal. Cheap electricity, water and fertilizer are here to stay with a possible relaxation of the tight minimum support price policy of the last few years.

Higher wage cost

Third, a significant expansion in the wage bill looms. For the armed forces it is the One Rank One Pension promise of the PM. For the Civil Service the recommendations of the 7th Pay Commission are to kick-in from 2016. Luckily the wage bill is low by international standards- 1.6% of GDP and 14% of the budget. But even small incremental increases, unless accompanied by efficiency enhancing restructuring, are not affordable this year.

This perfect storm of shocks cannot be wished away. Better to deal with it upfront. Here are five suggestions:

Winning the market perception battle

First, don’t be cowed down by stock market fluctuations or seek to pander to them. These are short term adjustments by speculators and not reflective of annual economic prospects. Consequently, rather than play down the “perfect storm” scenario it makes sense for the government to highlight the extreme shocks they are battling with to keep economic growth growing. Even in this David versus Goliath scenario, what is key is to share a plan of action on disaster management; income support; and realigning revenue expenditure to retain the revenue deficit and investment target.

Nothing much was heard about the recommendations of the Bimal Jalan, Expenditure Management Committee (August 2014). But it could provide some useful strategic, short term revenue expenditure rationalization measures.

Cut the Red Tape

Second, stressful times also create an environment conducive for administrative reform. PM Modi’s can quickly lick babudom into shape through positive strokes. He should consider setting up a lean but empowered “Decision Support Team” in his office, manned by ten senior Joint/Additional Secretary level officers selected for their expertise in key sectors; their ability to persuade and their flair for collaborative performance.

They would be mandated to speak for the PMO and be tasked to work with the key ministries and state governments to cut through red tape holding up investment decisions. Working against weekly targets with real time feedback to the PM, the mantra for this team should be “ANA- Achievement Not just Activity”.

Those taking up such high tension assignments should expect to be on the fast track to become Secretaries to the GOI. The PM is known to be cagey about trusting officers beyond a tiny circle familiar to him. This is not surprising given that he has never worked closely with the babudom in Delhi. But he should experiment by subjecting a larger group to the “agnipariksha” of performance. He will not be disappointed with the results.

Forget the optics of who gets the credit

Third, the knotty problem, particularly in Bihar and Uttar Pradesh, is how to be proactive in the face of state governments, which have the incentive to rebuff such support as being politically motivated.

The farmer does not distinguish between the state and the Union government (Lokniti Survey 2013) – 58% held both the state and the Union government responsible for the sorry plight of agriculture. If farmers fall through the gaps of political finger pointing, they will punish both the BJP and the SP-in Uttar Pradesh and the JD (U)-in Bihar. The beneficiaries of apathy will be Bhenji (Mayawati- the BSP supremo) in UP and Lalu Yadav in Bihar. Doing little is not an option for the Union government despite some of the shine rubbing off on the SP and the JD (U).

Don’t rattle the private sector

Fourth, it would be a big mistake to take too seriously the campaign to paint the BJP as a consort of the corporate sector. When stern action is warranted, it must be taken transparently and without rancor or bluster. But a “Preet Bharara type” of regulatory action is not what we need. Jobs are what the average citizen wants, which only the private sector can generate them.

Strong arm regulatory actions against foreign investors are bad optics- both for investment and for citizen sentiment. If our regulatory agencies are seen to be handmaidens of the government, they lose credibility. But the government also loses by devaluing an efficient instrument for regulating the private sector in a hands-off, technical manner.

Sticky revenues

Fifth, boost revenue. The tax receipt scenario is grim. First, projections for the year were over optimistic at Rs 14.5 lakh crores (US$ 230 billion) around 16% higher than the previous year. Tax receipts are bound to slide with slow external and domestic demand and lower corporate profits, despite the 15% increase in the rate of service tax. A tax receipt equal to last year’s estimate of Rs 13.7 lakh crores (US$217 billion) or 9% more than the actuals of last year is the best we can hope for- 5% points due to inflation and 4% points due to growth of the taxable base.

Getting more tax payers into the net is a worthwhile but effort intensive option with limited upsides. In 2013-14 there were 47 million direct tax assesses. New assesses have varied between 1 to 3 million per year since 2011. Even doubling the number of new assesses helps only marginally in additional revenue.

Transferring the crown jewels to citizens

There is more upside in fast tracking disinvestment. Listed Public Sector Undertakings (PSU) account for 13% of the valuation of the Bombay Stock Exchange or around Rs 13.6 lakh crores (US$ 215 billion). Of this, some equity is already held privately by minority investors. But an additional 10% can be sold without diluting government’s majority control. The problem is that, in the past, Institutional Investors have been the primary takers for such shares. Retail investor appetite has been largely absent from the tumultuous stock market for some years now and market momentum has been primarily provided by Foreign Institutional Investors.

Selling PSU shares in large volumes, without transferring majority control to the private sector, dampens the market price. Even the private IPO market is slow. Government is wary of inviting the charge of crony capitalism by selling shares to large institutional investors at cheap rates.

On the other hand, selling directly to retail investors is more defensible even if the price is low. After all the “Crown Jewels” really belong to citizens. Dispersing the ownership of PSUs widely also meets multiple objectives. Why not borrow a leaf from Dhirubhai Ambani’s 1982 market making strategy and incentivize the retail investor back into the market?

Link disinvestment, as a sweetener, to the issue of government debt for retail investors only – special convertible bonds – with a fixed return for three years at the prevailing Government Bond rate. 50% of the face value could be optionally convertible on termination in 2018-19, into a balanced bouquet of public sector equity at a 15% discount to the then prevailing market price.

A sequenced, mega issue of Rs 1 lakh crores (US$ 16 billion) of an asset backed government security can reduce the short term risk profile of PSU equity investments and pull in finance from an alternative source.

Government must come out with an evidenced strategy to deal with the “perfect storm” India faces. Of course, the PM is a “lucky General”. The drought may not materialize; the world economy may sort itself out and the opposition in Bihar and UP may self-destruct. But waiting for this to happen may be pushing the Gods too far.

Arun Shourie- minister in the earlier NDA government and senior BJP leader was being strategically alarmist when he went public on May 1 warning Prime Minister Modi against succumbing to the seductive spell, which the Chinese put on Pandit Nehru (India’s first Prime Minister) eagerly accepting his diplomatic largesse and support whilst remaining firm on giving nothing in return, which was not expressly bargained for and agreed.

Mr. Shourie has a flair for the dramatic and an uncanny ability to be evocative in his speech, sweetly hitting hardest, where it hurts the most. The Chinese “betrayal” of Pandit Nehru’s “brotherly” love by invading India in 1962 broke Nehru’s heart and spirit. He succumbed to the body blow two years later. China supporters maintain that unclear messaging from India forced China to retaliate since it perceived India as being bent on unilaterally disturbing the status quo along an un-demarcated Himalayan border between the two countries. Be that as it may, the China-India 1962 war, in which, despite heroic, determined but futile resistance from an ill-equipped and poorly led Indian army, China soundly trounced India, has left an open wound for India, which is still raw more than five decades later.

One doesn’t need to go back to 1962 to be sure that China is not a natural ally for India. We are just too similar with few complementarities and hugely competing priorities.

India-China, twins separated at birth?

Both countries are in a race for fuel, which neither have and both need to grow their economies and feed their people. One out of every three humans is either Chinese or Indian. China is racing to achieve high income economy status (per capita GNI> US$ 12,746) whilst India is striving to be an upper middle income economy-where China is today (per capita GNI> US$ 4,125). Both need to find export markets to fuel their growth. Both are relative “outsiders” to the high table of developed countries and both are jostling for space. Both peoples are hugely entrepreneurial and compulsively competitive. But there the similarity ends.

Even twins grow differently

India is barely at the threshold of being a lower middle income economy but its international, political engagement is larger than its economic heft. China is already an upper middle income economy but traditionally prefers to remain below the international diplomacy radar and boxes well below its weight, except when it perceives its national interest directly at stake.

India is a democracy of long standing, grounded on the compulsion of complex heterogeneity and plurality. China is a largely homogenous, beneficent, authoritarian meritocracy.

India is has been institutionally and ideologically networked into the developed world due to its colonial heritage and the facility with English. But it is a recent and somewhat unwilling, entrant to the international trade and investment value chains. China’s culture and values are unique and somewhat autarkic but its planned tapping of developed country knowledge, innovation, research and technology market has worked well. Its pragmatism, easy adaptation to change and determined implementation of a growth strategy by integrating into trade and investment value chains, sets it apart from even its East Asian neighbours, most certainly India and previously communist countries.

Given the lack of complementarities and the visibly rivalrous character of the relationship why has Prime Minister Modi steadfastly wooed the Chinese?

Why China eyes India

China knows well what it wants from India. It wants to service India’s booming market with cost competitive goods and services. This is why a bilateral trade target of even US$ 100 billion per year is rather limited for China. Given a choice it would rather shoot for US$ 200 billion so that it can buy into India’s growth prospects for adding at least 1% to its GDP growth over the next few years.

Growth is flagging in China. This is worrisome for the leadership which has built its credibility by “filling people’s pockets to shut their mouths”- a snide reference to the grand political bargain in which Chinese citizens agree to trade in individual freedom for material gains.

India has a trade deficit of 50% of US$ 37 billion with China. Bilateral trade is US$70 billion. This is higher than the aggregate trade deficit which is 20%. Further expansion of trade will likely worsen this deficit, since China is a more efficient mass producer of goods. Trade with China is consequently only a lever for India with which to negotiate alternative benefits in investment; security cooperation and mutually supportive diplomatic stances in multilateral fora.

So what is it about China which should excite India?

China made Indian Gods

Rather than predictably moan about the trade deficit with China Prime Minister Modi should praise the Chinese people for their achievements.

First, thank them for sending affordable goods to India thereby directly benefiting Indian consumers and forcing Indian industry to become competitive through attrition of uncompetitive businesses.

Second, thank China for being a role model for developing countries on the following three counts. (A) Illustrating the virtues of savings and investment led growth, particularly in manufacturing (B) Establishing the necessity of increasing public investment in human development and social protection (C) Providing to the developing world a model for enhancing employment, jobs and rapid reduction in poverty

Third, invite them to visit India as Tourists, Students, Scholars and Friends so that our great cultures can learn from each other directly.

The gloved fist

Much has been made of the Chinese excursions into India even as President Xi was eating Dhoklas with Prime Minister Modi in September 2014. Was this part of an elaborate Chinese plan to remind India that sipping green tea together does not mean China will give up its claims on Indian territory? Or were they a Peoples Liberation Army game plan to stab the reformist Xi in the back and undermine his international credibility? We may never find out. But what it does illustrate is that diplomacy is like sleeping with snakes-one has to sleep light, remain vigilant, move slowly but definitively and remain calm and unperturbed by the ensuing rattles.

Chinese cash

Should we fear Chinese investment in India? Clearly they have the cash and we have the need for it. One reason why we need the cash is to generate jobs. This means that the standard Chinese model of project implementation which relies on Chinese expatriates does not suit our needs. Rather they should build Indian skills in project implementation in keeping with their celebrated record in project implementation.

Partnership with Indian companies is the best model for Chinese investment in India so that social benefits and tax revenue flows downwards to the people of India whilst corporate profits flow to China. Other than a very short negative list of investments in sensitive border areas, Chinese investment should be welcomed. In fact co-partnership in international value chain related production can be of mutual benefit in services, engineering and chemicals.

End game

Prime Minister Modi’s China strategy must needs be minimalist. India looms too large in China’s neighbourhood for comfort. China will pull no punches in consciously trying to establish its dominance in South Asia and thereby cramp Indian influence. This is very similar to the effort India spends on cultivating Vietnam now and Taiwan earlier to the chagrin if China.

The best that India can hope to do is to stop China from playing “spoiler” in India’s unfolding growth story. Chinese support for Pakistani Terror or Maoist rebels in east India is an illustration of such proxy efforts. The best way of neutralizing “spoilers” is to co-opt them into the game as active participants. We must encourage China to develop significant investment stakes and trade links with India so that they too benefit from India’s growth. Actively encouraging highway and rail links across borders is a good place to start. India must aim to become “too big” in the Chinese investment portfolio for it to stall Indian growth- this is what “protects” the US.

It is inconceivable that Mr. Shourie is oblivious of this imperative to reach out to China. Could it be then be that his highly publicized “missive” to the PM was just a charade, dreamt up by the BJP “dirty tricks” department, to build up PM Modi as a strong and forceful leader with the reach; the credibility and the strategic depth to ignore inner-party, high level resistance to warming up China-India relations? In other words was Mr. Shourie’s advice given with the full knowledge that it would be ignored?

Similarly, could it be that the recent government action against Greenpeace and the Ford Foundation for crossing red lines by supporting activities against the national interest, were also initiated to project Mr. Modi’s government, ahead of the China visit, as being strongly nationalistic, able and willing to cock a snook at the US, just to illustrate, that India is not wedded to any traditional power block.

Far-fetched or not, PM Modi leaves for Beijing on a stronger wicket, as a friend of China, than he started with in September 2014, in part, thanks to Mr. Shourie.

Charismatic leaders can mould crowds like putty. Bill Clinton’s March, 2000 “US and India are natural allies” address to the Indian Parliament; Barrack Obama’s University of Cairo “New Beginnings” address to the Muslim world, June, 2009 unleashed a Tsunami of optimism and “feel good”. In much the same way, PM Modi-the man with an agenda of Big things for Small people- in his recent Madison Square address, won over the hearts and minds of a “massive” (by US standards) crowd of 18,000 Indian-Americans in New York and an even larger audience back home in India.

For many Indian expatriates, including us in India, it is a relief to have a Prime Minister who radiates strength, speaks extempore and from his heart. It also helps that he is a consummate performer, who draws energy from the crowd and returns it to them magnified many-fold.

Those looking for suave wit and a sophisticated exposition of geo-political gyan were sorely disappointed. Modi was deliberately folksy and simplistic. He capitalized on his strengths magnificently, just as Indira Gandhi, the last Indian PM with an international stature, used to do more than three decades ago.

Of course, it helps if one can live on water endlessly and still have the physical ability and mind space to go through a deliberately, whirl-wind program. By doing so Modi has become a live bill-board for the low carbon footprint potential of solar energy. His eschewing food altogether, through the trip, was akin to the Mahatma wandering through the London chill in his sparse loin cloth, protected only by the churning energy generator in his mind.

Till now the West has been wowed by India’s IT skills, thanks to our Silicon Valley diaspora. Next, we are likely to be branded as Yoga maestros all and expected to perform never-before feats of physical endurance.

But it was not all plain sailing.

Three areas where plain speaking-PM Modi’s forte, would have helped, are listed below.

First, what exactly is our stand on joining the fight against Islamic Terror and the linked approach to Afghanistan? The message coming through till now is fuzzy. It seems India is likely to carry on in much the same muddled way we have done till now; remaining visible in Afghanistan, but primarily as well wishers, bringing development to the people of Afghanistan. This is clearly dissatisfactory and unrealistic in the context of the impeding US withdrawal and the likely security turmoil courtesy the unresolved political contestation between the Ashraf Ghani and Abudullah Abdullah groups. National governments are prone to fail. Similar recent experiments in Nepal, Zimbabwe and South Sudan illustrate the illusive nature of such options for “externally enforced” stability in the face of unresolved local contestation.

Our interest lies in clearly establishing that we view the Taliban, the Pakistan Army and Militant Kashmiri jihadi groups as part of the same set of Islamic Terrorists, which are a direct and existential threat to us and our secular, plural democratic system. We must be willing and able to take the most effective action in our near abroad to crush Islamic Terror. But where Islamic Terror is not a direct threat to us (as for example the ISIL) whilst any UN endorsed initiative will have our support, we do not have the resources to join a plurilateral initiative against global terror. This is strictly for the big boys; the US, its NATO allies and China.

PM Modi has been at pains to explain that on this trip that whilst he has been trying for more than the last two decades to get the US to recognize the global consequences of Islamic terror, they took cognizance only after 9/11, when it hurt them directly. The fact is we must be similarly discriminating in unbundling Islamic Terror into immediate and distant threats and not be distracted by the enormity of global threats and ignore focusing on managing immediate threats, closer home.

Plain speaking about our threat perceptions, our limitations and our determination not to be cowed down by terror would have helped.

Second, the message on trade and investment needs to be distilled better. The economic opportunities in India are well known. The demographics; the steady economic growth and resultant demand and our democratic architecture.

Unfortunately most foreign investors live in the present. No international manager has a business perspective beyond a decade-even if they draw up beautiful thirty year perspectives. What big business looks for is leadership level facilitation to get their specific project up and running quickest with commercial and political risk minimized.

Tardy environmental clearances; tax opacity; poor infrastructure and most recently, the extended ambit of judicial review of contracts are big dampeners. Many of these constraints are institutional and require structural change, which is long term. What we need are near tern solutions, of the fire-fighting kind, to establish the enabling business environment. Selective but transparent tweaking of dilatory process is an obvious option but there are challenges even here.

At the leadership level, “successful tweaking of process” requires political credibility that the selective attention is in national interest and not another manifestation of crony capitalism. Consensus building between the executive and the judiciary of the acceptable envelop of “process tweaking”, in national interest, is key for retaining the credibility of the executive and the independence of the judiciary, whilst simultaneously ensuring that the judiciary does not get drawn into settling political scores.

PM Modi is best placed to manage the optics on this score. At the operational level, he will need the support of a highly skilled and empowered team of state government officials working with counterparts from the Union Government, to pilot the tweaking process towards accelerated launch of projects.

What should constitute the government’s decision matrix for determining the “hurdle rate” for projects to be eligible for tweaking the “way we do business”? In such circumstances it always helps to have narrow objectives. “Employment and poverty reduction”, both of which are urgent near term investment related goals, present themselves as excellent “filters” for evaluating and identifying proposals which merit the highest level of facilitation.

50 projects; 5 million jobs; US$15 billion investment can be the rolling target with automatic replenishment by new proposals as projects get launched. Unfortunately, we missed the opportunity to generate the frisson of excitement which the project based approach generates.

Third, plain speaking on our environmental and energy policy would have helped. It is clearly in India’s interest to clean its water bodies and rivers; reduce air pollution and reverse the denudation of forests and degradation of land. Degradation of these natural assets has immediate economic and social outcomes usually with adverse poverty consequences. It is the poor who are impacted negatively when water bodies and rivers become polluted because they use them directly for personal needs and business. The poor similarly suffer the most from atmospheric pollution because they are incapable of insulating themselves and their children, from such ambient pollution. Unregulated deforestation robs the poor of their eco-system and their livelihoods. Combating land degradation, like increased salinity often caused by unsustainable use of ground water and poorly managed large irrigation schemes, is a costly undertaking, which is often beyond the financial ability of the poor.

On energy our big concern is energy security. The use of coal is likely to remain a staple component of our energy profile. Similarly, more aggressive utilization of the hydro potential in India and in South Asia is an efficient option. Embedding passive energy efficiency building design is another significant option. Urbansiation levels are relatively low but there is a big stimulus in the offing under the PMs target of a house for all by 2022.

More generically, India is committed to technology choices which are congruent with our two, often conflicting, goals of reversing the degradation of natural resources whilst ensuring energy security. An increasing share of wind and solar energy is one such technology choice. Increasing the share of public transportation by railways relative to roads is another which the government is pursuing. But capping India’s carbon footprint at an unrealistic level is similar to capping food subsidy at historical prices which India has already rejected.

The mantra for plain speaking on the Indian strategy for managing terrorism; enlarging trade and safeguarding the environment is to rely on the simple rule of first reserving the fiscal and the physical space for the developing world to “catch up”, before providing breathing room for the developed world, who have abetted and often perpetrated all three global problems, by agreeing to hold them harmless.

The Pak-India affair is almost as tiresome as the Israeli-Palestine impasse. Neither party can pull apart nor do they live together in peace. Successive governments on both sides start a peace initiative at the beginning of their terms, only to lapse into status-quo near the end-defeated by the inertia of babus and elite interest on both sides.

For most of India, south of the Vindhayas and East of the Yamuna, Pakistan remains a distant and intractable land. For the average Pakistani, India is a bully, growing muscular by the day, bent upon destabilizing Pakistan.

It doesn’t help that for all practical purposes, Pakistanis and North Indians are very alike. They share the same values and prejudices. The daily “show” of faux aggression at the border post of Attari, near Amritsar, illustrates the brawny culture on both sides. Border guards on both sides face off in a peculiar, mirror image, “Punjabi Tango” of choreographed, muscle and moustache to the accompaniment of lusty words of encouragement of their country people. But the bravado ends tamely, with both sides trotting off to their own quarters, their duty done.

The similarities extend to the mirror, comparative advantages of the two countries; near similar human capital development levels, low income levels and low natural resource endowments. Also similar are the barriers to growth, vast inefficiencies in government and elite capture; by the agro-military-industrial complex in Pakistan and by the agro-industrial elite in India.

Both economies have benefited from adoption of the “open economy” model of growth since the mid 1980s. India more so than Pakistan, which has been constrained over the last two decades by its preoccupation with Afghanistan and its own war on terror-albeit some of it, of its own making. As Bhindrenwale was to Indira Gandhi, the Taliban has become for Pakistan; an out of control Tiger.

The first casualty of insecurity is investment-both public and private-especially in infrastructure. Long payback periods are unsuitably risky if revenue streams become uncertain. More importantly, with the world increasingly in the “open economy’ mode, there are easier business pickings elsewhere. The 21st century belongs to growth in Africa and that is where business is rushing to be, both Indian and Pakistani.

It is not surprising therefore, that trade between Indian and Pakistan is minimal and stagnant, relative to the total trade of both countries. Pakistan exports only 1% of its total goods to India and only 4% of its imported goods are Indian. Of course, the official data underestimates the actual trade through third countries and destinations. Both could benefit by cutting out the intermediaries margin and higher transportation cost of acceptable third party destinations. Non-tariff barriers on both sides; poor trade infrastructure and low financial integration make even the best cross border trade intentions die. Cross border investment is yet to be a reality.

Why then bother at all to disrupt the convoluted stalemate of the past five decades? Here are three good reasons:

First, Pakistan estimates (Economic Survey 2013-14) that it loses up to 3% of its GDP due to insecurity, bleeding it of nearly one half of its potential GDP growth. For India, an insecure Western border is expensive. The geo-politics of Pan-Islamic militancy unsettles its domestic, plural aspirations.

More generally, “including the poor” is a common challenge for both countries. The last thing, either could possibly want, is to add the cost of managing terror to that long list of unproductive, resource draining preoccupations.

Second, India and Pakistan both gain by operationalizing the Turkmenistan-Afghanistan-Pakistan-India gas pipeline. This has been on the agenda for the last two decades and 2018 is the new aggressive target. Both economies are deficient in gas, a clean and versatile fuel for power generation, domestic use and industrial purposes. India loses 0.5% of its GDP every year due to shortage of peaking power capacity. Perversely, domestic coal supply shortages and the high cost of imported coal and LNG keeps installed capacity idle. The TAPI pipeline, would meet around 20% of our gas demand till 2030.

Third, the lack of Pak-India economic integration provides a ready opportunity to China; the “big Panda in the room”, to deepen the economic “silos” with each integrated independently to China, but not to each other. This is already happening. Whilst trade between India and Pakistan stagnates, trade between China and Pakistan is booming, as is trade between China and India.

Of course China is the world’s factory. It aggressively supplies price competitive goods, well suited to the limited pockets of developing countries. Chinese trade comes with generous financial outlays to develop and manage strategic infrastructure; Gwadar Port in Baluchistan (linking the Middle East to China in a trade and energy corridor) and the offer to build high speed railways and highways in India.

Both Pakistan and India will accept much needed foreign capital and investment from anyone who offers it. That is the wise thing to do commercially. But it makes strategic sense to also develop alternative trade and investment opportunities in their “near abroad”. Infrastructure development is a great facilitator for growth. But it also has enduring legacy value. It determines the future spatial spread of growth and jobs along economic corridors. It is sobering to remember that Karachi Port is nearer to Delhi and Amritsar than is Mumbai.

Democracy is great for transparency but is a killer for negotiations, strategic deals and moving on, which are best done in privacy. This is a limitation for PakIndia normalization. The history of distrust and animosity extends far beyond the cricket field. Babu led governments become hostage to the “agency problem”. The narrow self-interest of the managers drowns the real interests of those they represent.

Progress can only come from “disruptive innovation” by leaders. It’s PM Modi’s call. A dash of Gujarati Dandia could spice up the frozen-in-time “Punjabi Tango” to produce results.

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Hindus, across caste lines, believe that the Modi Sarkar will usher in better times. But there is disquiet amongst the Muslims, in particular, but also amongst Christians. Both religions are of foreign origin and linked to religious regimes located elsewhere. They fear the whip-lash of a possible “India for Hindus” sentiment akin to the “Africa for Africans” sentiment in the 1970s, leading to the exodus of non-Africans. Also a consolidation of Hindu votes can make minorities less politically relevant as a vote bank.

Such fears are understandable. The potential for anti-foreign religious mania builds on the traditional Indian geo-political stance of self-determination and against “domination” by external actors. Nehru, a romantic, shunned geo-political alliances and grew the idea of “non-alignment”. Indira Gandhi, was more practical and whipped up phobia against the “invisible” hand of the West in geo-politics and leaned towards the obliging Soviets.

The BJP view on geo-politics is no different from that of the Congress in the recent past or indeed that of the Chinese; to do everything which builds the domestic economy and secures the country’s interests. However, there is one variation in the BJP strategy, which finds no place in that of the “secular” Congress.

Just as Amma’s geo-political stance is determined by how it affects Tamil interests (in the context of Sri Lanka), the BJP is likely to boldly pursue the cause and interests of Hindus overseas. Is this horribly unsecular?

Those who think so, must consider who else would weigh-in when Hindus are denied human rights in religious States like Pakistan or the Middle East? India is where Hinduism has developed and it is extremely odd that the Indian government should shy away from this duty. Should not a “secular” BJP be similarly proactive in protecting the rights of persecuted Christians in Egypt or South Sudan for instance, or allegedly persecuted Muslims in France or the US?

Whilst siding with a generic commitment to the Human Rights doctrine, the BJP rightfully believes that it is for States (much stronger than India in economic and political clout), which ascribe to these religions, to do this front line job. These nations do so in any case, even in the context of alleged human rights violations of Indian Muslims and Christians. In contrast the Hindus have no one, except India, to bat for them.

“Secularism” has acquired a shrill, hollow, politicized tone in India, which is at variance with our global interests. This is not to say that India should change the Constitution and become a Hindu State. Far from it. Secularism, in so far as the relationship between the State its citizens is concerned, should become even more sanitized of religious dogma to reassure Indian minorities.

The State must disengage totally from all religions, starting with religious rituals at State functions. Multi religious prayers and the construction of temples, mosques or churches in government buildings, especially the defence forces and police establishments, must be shunned. Warships should be launched, not by breaking coconuts on their hulls, but by a secular ritual. At state funerals, a clear distinction must be drawn between the role of the State, the party and the family concerned. The State must withdraw from the function, once religious rituals take over. The display of calendars with gods, goddesses and religious symbols must be banned in public offices and a code of religious conduct introduced for public servants.

The romantic notion that the State can “adopt” all religions and yet remain secular, is fanciful and lies at the root of competition between religious denominations, for privileges, government funds and political power.

Has Indian “secular double-speak” been conclusively defeated in the 2014 elections? Unfortunately no. The political cleavages between Hindus and Muslims remain as deep as ever. Caste based politics has been papered over but remains a potent political instrument at the sub-national level.

The BJP remains essentially a Hindu party. The real political conundrum facing it, is whether proactive outreach to secular Muslims and secular Christians, is likely to compromise its appeal to its new pan-Hindu, caste rainbow, voter base?

The longtime BJP supporter; Punjabi refugees from the Partition (now on the demographic wane); the Banias; Pandits and Thakurs of North India and a smattering of in-between castes, no longer constitute the bulk of BJP supporters. The baton has passed to aspiring youth frustrated by the lack of decent jobs; shoddy public facilities and a poor quality of life. These voters increasingly gel along classic, class lines. Kejriwal shrewdly tapped into their frustration but did not have the mind space to lead them. Modi has stepped into this breach and scaled up the strategy nationally.

But one major problem the BJP faces is that it’s “traditional Indian” image does not square with the aspirations of the modern Indian woman. This antediluvian caricature of ‘Indianess” and the role and relative status of a woman, is derived mostly from the BJP’s base in the North, where the status of women is the worst. Under Modi’s leadership, hopefully, the more enlightened, gender neutral cultural norms of Hindus in the West, South and the East of India shall prevail.

After all, unlike other leaders of his generation, Modi encouraged Jashodabehn to get educated and self-actualise, just as he was trying to do. But now the battle is done. Both Modi and Jashodabehn have voluntarily sacrificed their marriage and it is time to acknowledge their unbreakable bond of friendship and mutual respect. Jashodabehn is Modi’s biggest fan. She should not be discouraged from being so publicly.

Finally what of the poor, all 700 million of them, who earn less than US$2 per day. Modi was one of them and they are his primary constituency, irrespective of religion or caste. This must reflect in the government’s policy on reservations and positive affirmation in general, through a poverty criterion.

There are three things the poor fear most of all; (1) insecurity, (2) inflation and (3) financial shock. They are the least prepared and the most exposed to all three. The Modi agenda already assures that social protection schemes, started by previous governments, will be made more effective, not shut down. If he can kick start domestic manufacturing by systematically cutting red tape and encouraging babus to deliver; boost infrastructure construction through public finance; incentivise tourism and private investment, the poor can be assured of a steady supply of decent jobs. We need to generate 10 million a year.

One hopes that the false pride, associated with an appreciating exchange rate or hollow but unsettling jingoism, will not scuttle the sustained development of an internationally competitive, Indian economy. Modi is a practical man and a master strategist. He shall not be found wanting. Ache din aa gaye hain.